New Jersey’s Economy Is in the Tank, Maintains Conservative Think Tank
Finishing next to last among 50 states for fiscal solvency, NJ gets dinged for chronically underfunded pension system, how well state can cover long-term liabilities
Only Illinois is worse off than New Jersey when it comes to fiscal solvency, according to a new study that reviewed the financial health of all 50 states.
New Jersey’s poor showing in theby George Mason University’s Mercatus Center comes at a bad time for Gov. Chris Christie, a second-term Republican who just that he is running for president in a tight GOP primary.
Christie, who took office in early 2010 preaching fiscal discipline, has had several years to work on many of the issues that were identified as problems in the study.
But the public-policy research center’s findings also reflect some improvement -- New Jersey came in 50th in-- and bring some new attention to issues Christie has tried to emphasize in recent years, including the need to address the state’s chronically underfunded public-employee pension system.
The conservative-leaning Mercatus Center – “mercatus” in Latin means “market” -- judged the states on five different categories, including whether they are bringing in enough revenue to pay bills and if they are keeping enough cash on hand to cover those bills. The states were also measured on long-term solvency, debt, and other obligations, including employee pensions and healthcare.
The states that fared best in the study were Alaska, North Dakota, South Dakota, Nebraska, and Florida. New Jersey was in the group with Illinois, Massachusetts, Connecticut, and New York.
“High deficits and debt obligations in the forms of unfunded pensions and healthcare benefits continue to drive each state into fiscal peril,” the study said. “Each holds tens, if not hundreds, of billions of dollars in unfunded liabilities -- constituting a significant risk to taxpayers in both the short and the long term.”
New Jerseyin the categories of budget solvency and long-run solvency, which measure whether revenues match expenditures and how well the state is prepared to cover its long-term liabilities. New Jersey came in 38th in cash solvency, a general gauge of the state’s liquidity, and 30th for trust-fund solvency, which factors in debt and other long-term obligations. And the state came in 20th, its best showing, in the category of service-level solvency, a comparison of taxes, spending, and revenue to personal income levels.
A spokesman for the state Department of Treasury declined comment on the rankings yesterday.
The Mercatus rankings were released nearly a month after New Jersey’s fiscal practices receivedin a report that was released by the Volcker Alliance, a nonpartisan fiscal watchdog organization led by former Federal Reserve Bank Chairman Paul Volcker. The review faulted New Jersey for its revenue-forecasting practices, pension funding and insufficient rainy-day surplus account.
New Jersey also ranked 46th among states in economic growth according to statistics that were released last month by the federal Bureau of Economic Analysis.
Although the latest Mercatus rankings were released yesterday, the states were evaluated using audited data from the 2013 fiscal year. And New Jersey, in recent months, has made some strides when it comes to some of the fiscal challenges that were identified in the report.For example, after several years of missed revenue projections, tax collections during the past fiscal year came in $212 million higher than expected. And the state budget signed into law late last month by Christie for the fiscal year that began July 1 boosted the surplus account to $700 million. It also included a $1.3 billion payment to the public-employee pension system, which is a record contribution for one fiscal year.
Christie has attempted to make the pension system and the cost of public-worker benefits a key issue for much of the past year after he endorsedthat were released in February by a nonpartisan commission of experts that he convened in 2014 to study the benefits-affordability issue. The commission’s recommendations included freezing the current pension system and moving workers into a new retirement plan with features of a 401(k).
But even as he’s pushed for reform, Christie went back on a promise to increase state contributions to the pension system, which had an unfunded liability of at least $40 billion according to the latest actuarial reports. The state Supreme Courtupheld Christie’s decision to cut payments originally laid out in reform laws that Christie himself enacted in 2010 and 2011 despite protests from Democrats who control the Legislature.
Those reforms also required employees to contribute more toward their pensions.
The results of a new Monmouth University Pollfound only 12 percent of the state residents that were surveyed approved of Christie’s decision to reduce the state’s pension payment. And only 19 percent of the 503 adults surveyed between June 30 and July 1 agreed with Christie’s position that pension benefits are too rich and should be cut.
Democratic legislative leaders, meanwhile, have opposed new reforms, and last month Christie rejected their attempts to bring in more revenue for the pension system by increasing taxes on corporations and high-income earners. In response, they passed a measure thatto make the $1.3 billion pension payment well before the current fiscal year ends on June 30, 2016, saying the early deposit would earn the state millions in investment income since the pension system is professionally managed and assumes a 7.9 percent annual rate of return.
But Erica Klemens, state director of the conservative Americans for Prosperity organization in New Jersey, said the Mercatus study “makes clear that the very future of our state and the quality of life for our residents is at risk unless the state’s pension crisis is addressed.”
“The longer lawmakers allow this serious problem to go unresolved, the harder and more painful it will be for everyone who calls New Jersey home to endure -- whether it’s the imposition of huge tax increases, significant cuts to the core government services that keep our communities safe and vibrant, or both,” Klemens said.